Relief to Startup in Angel Tax Vide DIPP Notification By CA Ashish Agrawal


The MINISTRY OF COMMERCE AND INDUSTRY (Department of Industrial Policy and Promotion) has issued a notification in the Gazette on  16th January, 2019 which has been issued in partial modification of the earlier Gazette Notification No. G.S.R. 364(E) dated April 11, 2018, with regard to clause (viib) of sub-section (2) of section 56 of the Income Tax Act.

A Startup which is recognised by DIPP under para 2(iii) (a) shall be eligible to apply for approval for the purposes of clause (viib) of sub-section (2) to section 56 of the Act for the shares already issued or proposed to be issued when the following conditions are fulfilled—
 
(i) the aggregate amount of paid-up share capital and share premium of the startup after the proposed issue of a share, if any, does not exceed ten crore rupees;

(ii) The investor/ proposed investor shall have —

  1. returned the income of Rs. 50 lakh or more for the financial year and just preceding the year of investment / proposed investment; and
  2. Net worth more than Rs.2 crore or the amount of investment made /proposed to be made in the startup, whichever is higher, on the last date of financial year just preceding the year of investment/ proposed investment.
The revenue requirements being increased from an average of ?25 lakh in the past three years to ?50 lakh in the past one year will see many startups being ineligible. Startups that plan to raise funds from family offices or angel groups will continue to face problems as they may not qualify the above areas.
 
(iii) (a) the approved application under this para shall be made in Form-2 to DIPP and with the attachment of documents specified therein:
Provided that in case the approval is requested for shares already issued by the Startup, no application shall be made if assessment order has been passed by assessing officer for the relevant financial year.

(iv) The application of the recognized startup shall be transmitted by DIPP to CBDT with the necessary documents.

(v) 
The CBDT may grant approval to the startup for the purposes of clause (viib) of the subsection (2) of section 56 of the Act or decline to grant such approval, within the period of 45 days from the date of receipt of application from DIPP. Approval from the Inter-ministerial board which was seen as time-consuming earlier is not required now. The government said it has simplified the procedure for startups to seek exemption from angel tax.
 
(vi) CBDT has  also been empowered  with the right to revoke the  approval issued if the same has been obtained on the basis of false information
 
(vii) Approved startups were earlier required to obtain valuation from a merchant banker to substantiate the value of shares/premium. The requirement of ‘Merchant Banker Valuation’ has been done away with for recognised startups.
 
This Notification shall come into effect on the date of its publication in the Official Gazette. The Government will carry out a review of this Notification before 31.03.2021.
 
Form-2 is replaced as follow:-
 
Application for approval for the purposes of section 56(2)(viib) of the Income-tax Act, 1961:

  1. Name of the Startup- .......................................
  2. Date of incorporation of Startup as company
  3. Incorporation No-.......................................
  4. Address and business location-.......................................
  5. Nature of business- .......................................
  6. Contact details of Startup (Phone No. and Email)-.......................................
  7. Permanent Account No-.......................................
  8. Startup Recognition number allotted by DIPP- .......................................
  9. Existing/proposed activities-.......................................
  10. Details of share capital as on the date of application-
(i) Amount of share capital.........
(ii) Issue price and date of issue of shares.........
(iii) Type of shares............
(iv) Number of shares.........
(v) Face value............
(vi) Amount of share premium......

  1. Details of existing shareholders-
(i) Name(s)-………..
(ii) PAN-……
(iii) Residential status-………..
(iv) Address-…………
(v) Number of shares-……….
(vi) Type of shares-............
(vii) Face value-............
(viii) Issue Price and date of issue-………..
(ix) Amount of share premium-......
 
  1. Details of shares along with shareholders for which certification for exemption is sought—
(i) Name(s)-………..
(ii) PAN-……
(iii) Residential status-………..
(iv) Address-…………
(v) Number of shares-……….
(vi) Type of shares-............
(vii) Face value-............
(viii) Issue Price and date of issue of shares (existing as well as proposed)-………..
(ix) Amount of share premium-......
 
  1. The justification for valuation of shares along with supporting documents, if any. 
Declaration

I/We hereby certify that the above information furnished by me is true and no relevant information has been concealed.
 
For (Name of the Startup)
 
(Name of the authorised signatory) Designation
Place: __________
Date: __________
 
This form shall be accompanied by the following documents —
 
a) the annual accounts of the startup for the last three financial years (if the Startup is in existence for less than three years, then annual accounts from the date of its incorporation);
 
b) Copies of Income Tax returns of the Startup for the last three financial years (if the Startup is in existence for less than three years, then copies of Income Tax returns from the date of its incorporation);
The following documents shall be submitted by the investor(s) directly to DIPP—
 
c) Copies of income-tax return and net worth certificate of the investor for the relevant financial year.

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